Enron Accountant Admits to Raiding Reserves to Boost Earnings
An Enron accountant testified in court Monday that he plundered reserve funds to inflate earnings and make look Enron look more successful than it was.
The fraud and conspiracy trial of former Enron Chief Executive Jeffrey Skilling and founder Kenneth Lay started its fifth week with testimony from Wesley H. Colwell, the former top accountant for Enron's trading division.
According to the Associated Press, Colwell said he reduced reserves by $14 million between the close of the second quarter in 2000 and Enron's earnings announcement. The $14 million was added to reported income, and Enron announced to analysts that earnings-per-share would be 34 cents–2 cents more than what analysts had predicted.
Skilling did not directly order Colwell to pull cash from reserves to bump up earnings, Colwell testified. “I didn't talk to Skilling,” he said. He said he understood that it was Skilling's “preference” to beat analysts' expectations.
Skilling lawyer Randy Oppenheimer told the jury that reserve accounts protect companies against losses or liabilities, and are a normal part of business operations. On cross-examination, Colwell said that the $14 million was not a big figure for Enron.
"Fourteen million is not material to Enron," he said. But, Colwell said, "an investor would want to know that we were selecting an earnings number and moving reserves,” the Houston Chronicle reported.
Colwell had replaced Wanda Curry, who testified, "I was told I was being replaced ... because I was not capable of making aggressive accounting decisions.”
She was moved to the retail division where she conducted a risk assessment and found a financial mess, including a box with millions of dollars in uncashed checks from a utility in Southern California.
Colwell is cooperating with prosecutors under an immunity agreement. He had also agreed to pay $500,000 to settle charges by the Securities and Exchange Commission.
The trial continues, with Skilling facing 31 counts of fraud, conspiracy, insider trading and lying to auditors. Lay faces seven counts of fraud and conspiracy.